The Wall Street Journal-20080131-Ask Personal Journal

Return to: The_Wall_Street_Journal-20080131

Ask Personal Journal

Full Text (155  words)

Q: Can you explain how the alternative minimum tax works?

-- S.M., Montgomery, Ala.

A: The origins of the AMT date back to the late 1960s, when the Treasury Department told Congress that a small number of high-income taxpayers had managed to pay no federal income tax through the legitimate use of deductions, credits and other items. In response, lawmakers created what has morphed into the AMT today. Under the AMT, millions of people have to figure their taxes twice -- once the regular way and then another way using many different rules -- and then pay the higher amount. For example, if you're subject to the AMT, you can't deduct state and local taxes. Also, the standard deduction and personal exemptions aren't allowed. Among those most likely to be hit by the AMT are people with large families who make between $100,000 and $500,000 and live in high-tax areas, such as New York City.